(Bloomberg) -- Many of the companies that make up the UK’s burgeoning payments scene lack proper controls and some pose an “unacceptable risk” to customers and the integrity of the financial system, according to the markets watchdog. 

There are “material issues” with anti-crime controls along with “elevated fraud rates” in some firms, the Financial Conduct Authority wrote in a so-called Dear CEO letter to the heads of electronic-money and payments institutions. The nation’s cost-of-living crisis heightens the risk of customer harm and the regulator will take “more assertive action sooner” against problematic firms, according to the letter. 

The FCA authorized hundreds of electronic-money and payments institutions in recent years as the UK sought to bolster its reputation as a global hub for financial technology. The industry has attracted scrutiny for its shoddy controls, however, and prompted questions of whether the regulator’s oversight has been tough enough.  

“We welcome the competition and innovation we have seen in the payments sector and the improved choice, convenience and value this can provide for customers,” the FCA wrote. “However, we remain concerned that many payments firms do not have sufficiently robust controls and that as a result some firms present an unacceptable risk of harm to their customers and to financial system integrity.”

The industry has been rattled in recent weeks by a series of clampdowns in Lithuania involving entities tied to FCA-regulated payments firms. The Bank of Lithuania last month ordered a unit of Railsbank Technology Ltd. to stop taking on new customers, stating there was “reason to suspect that the institution is grossly and systematically violating” anti-money-laundering and terrorist-financing laws. 

That came weeks after a similar order to a subsidiary of Transactive Systems Ltd., which cited “serious infringements” of laundering laws. 

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